Building Sustainable Policy Bridges

The catalog of recent setbacks for U.S. renewable energy policy is long and growing. The new U.S. Department of Energy budget includes a 4.8 percent increase in renewable energy program funding, yet funding for actual renewable energy programs has been cut some US$27 million. Already seven core researchers in the National Renewable Energy Laboratory biomass program have been laid off due to budget constraints.

RE Insider, August 2, 2004 – Some 70 MW of photovoltaic (PV) capacity have been installed in California — nearly 27 MW in 2003 alone — yet the California Renewables Buydown Program, scheduled to run through 2007 was out of funding this May and the fund for smaller systems is not expected to last the rest of the year. Despite the growing role of wind in the energy mix, Congress and the Bush administration allowed the critical wind energy production tax credit to lapse. The lapse threatens to stall further growth in wind, and already has resulted in industry layoffs. After another banner year of PV growth, U.S. PV manufacturers continue to fall behind in global (and even domestic) market share. And though many states have instituted renewable portfolio standards, few are actually producing significant increases in “green and emerging renewable” energy capacity. These reversals clearly demonstrate an overriding need for sustainable energy policies, implemented in ways that are themselves sustainable. To achieve lasting benefits, we must take a long-view approach to energy policy and budget development of incentives and programs over a decade, not just the current budget year. We must avoid the all-too-common up and down “yoyo” effect of substantial funding followed by funding shortfalls and gaps. Far more important than the size of the budget, the amount of the rebate or percentage of the portfolio standard is the sustainability of the approach. Renewable policies that are implemented in spurts followed by stagnant or declining periods are worse than no policies at all. Let Reliable Markets Lead To accelerate commercialization, we must create growing, sustained markets capable of stimulating production capacity increases and aggressive price reductions. This commercialization strategy, pursued by organizations such as the Sacramento Municipal Utility District, is referred to as Sustained, Orderly Development and Commercialization (SODC). Sustainable development expert Donald Aitken, Ph.D., describes SODC this way: “Simply stated, it represents a condition in which the costs of a new technology progressively decline through the action of a growing and stable market that is stimulated by orders placed on a reliable and predictable schedule. The orders increase in magnitude as previous deliveries and engineering and field experience lead to further reductions in costs. And, with respect to the renewable electric power resources, the reliability of these orders can be projected many years into the future, on the basis of long-term contracts [and/or market incentives], to minimize market risks and investor exposure. Through policies that mitigate market risk, stimulate new production and result in production technology improvements, we will stimulate the substantial price benefits of SODC. SODC leads to structural changes that result in lasting benefits. As manufacturing capacity increases due to SODC-stimulated market growth, the resulting production growth and price reductions are permanent effects. No matter how large, demonstrations and short-term market incentives are incapable of such stimulating such permanent manufacturing benefits. More important than the big splash is the sustained effort. We must enact incentives for extended periods of time (a decade, typically), with gradual reductions excreting downward pricing signals as the market matures. The signals must be clear and credible so industry will trust the sustained nature of the incentives and markets based on them. That confidence will go a long way toward enabling manufacturers to justify investing in new production and technology. The last thing we need is for the extraordinary market growth stimulated by the California Renewable Energy Buydown Programs to stall, even temporarily, losing the momentum gained. More important than the size of the incentive is the sustainability and credibility over a decade of the incentive program. Thus, our first priority must be to assure the sustainability of policies and incentives already in place and then, only then, build upon them. Sustained Policy is Key In order to accelerate the long-term cost reductions required for full commercialization, the solar industry needs reliable, growing and sustained domestic market volume. Manufacturers require long-term, reliable programs in order to invest the capital required to ramp up production. Therefore, to be effective, any renewable energy commercialization program, whether national or local, must be based on the principles of Sustained, Orderly Development and Commercialization. The approach and implementation must be: – Sustained: sustained over a period sufficient to result in market and manufacturing changes — typically a decade. Gaps in incentive funding can quickly gut its effectiveness. – Substantial: substantial enough to affect market changes – results in a series of doublings of the market, perhaps in concert with other initiatives. Assure sufficient incentive funding for long-term success, but avoid overly large incentives, they are counterproductive. – Predictable: predictable over the initiative period so investors, manufacturers, and suppliers know what the details and ground rules are over the period. Investors need to know the multiyear program plan. – Credible: credible with the investors, manufacturers, and suppliers so they are confident in making the needed investments to significantly expand supply. If the investor does not believe the multiyear program is credible or if funding is uncertain or may have significant funding gaps, the incentive will be ineffective in expanding supply. – Ramped: ramped down over time to exert constant downward price signals and avoid an “incentive cliff” at the end of the incentive period. This also stretches out the incentive funds and yields more bang for the buck. The lack of any of these factors will result in an incentive policy that is ineffective or even counter-productive. Any public policy aimed at accelerating the commercialization of sustainable technology must itself be sustainable and lead to sustainable changes. It must expand the sustainable market, stimulate new production, and lower costs in ways that becomes embedded and permanent. You want incentives that will expand supply, help reduce transactional costs, and lower costs over time. There are also items that local officials are in a unique position to address. Local officials need to take the steps that remove barriers and encourage local solar growth. These important steps can include: low cost/no cost permitting and expedited processing of solar project building permits, solar access protection, inclusion of solar in the planning process, and increased use of solar on local government facilities. Also get them to weigh in on supporting state level incentives. Some of the most effective efforts you can make for solar are at the local level. In California there can be no greater renewables policy need than to quickly resolve the funding gap in the Renewable Energy Buydown Programs. Through policy based on SODC — at the local, state, and federal levels — we can indeed build the bridges needed to make this era the Solar Century. About the author… Donald E. Osborn, is CEO of Spectrum Energy Inc., Elk Grove, California, (www.SpectrumEnergyInc.com) and the former head of the Sacramento Municipal Utility District Solar Program. He received the 2001 Energy Globe award and the 2000 ASES Abbot Award for significant contributions over 25 years to the solar energy field. He is the chair of the American Solar Energy Society’s Policy Committee. Contact him at deosol@aol.com.

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